Pricing Balancing Services in the Future Nordic Power Market

The Nordic power market is in transition, both in terms of technologies used for power generation and market structures. Binding targets exist for renewable power generation, as well as decisions to decommission nuclear generation capacity. Thus, the overall share of intermittent generation will continue to grow, and consequently, the need for flexibility and controllability both in production and demand will increase. In this context, there is a need for methods and tools suitable for forecasting operational costs and marginal costs (prices) for the future power system. Such forecasts are important components in the decision aid for investments, e.g., related to building new cables to the European continent and upgrading and expanding the hydropower system. Forecasts of operational costs and prices are normally obtained by use of fundamental market models. Currently used fundamental market models for hydro-thermal systems typically only concern the product energy, assume that all uncertainty is revealed in weekly steps, and that all functional relationships are linear. These assumptions will be significantly challenged in the future Nordic power market. The computation of realistic cost for balancing services, which also include the products reserve capacity and balancing energy, requires a much higher degree of details, e.g., in the representation of uncertainty and description of the physical system. A comprehensive model concept was developed in this project, suitable to compute costs and prices for reserve capacity, energy and balancing energy in the Nordic power market. The concept allows for detailed modeling of the power system on a fine time scale, emphasizing on detailed representation of the generation system (emphasize on hydro and thermal). The concept is verified in a set of case studies, based on extensive data descriptions for the anticipated future Nordic power system. Moreover, the concept is complemented through research conducted in associated MSc and PhD projects.

Det er utviklet et modellkonsept for å beregne drifts- og marginalkostnader for det Nordiske kraftsystemet. Gjennom dette er det bygget ny kunnskap om hvordan markedsmodeller med forskjellig horisont kan kobles sammen i et vannkraftbasert kraftsystem. Viktigheten av detaljerte markedsmodeller understrekes ved å tallfeste betydningen av detaljert modellering av vannkraftstasjoner og termisk verk ved verdisetting av systemets totale fleksibilitet. Det forventes at det etablerte modellkonseptet vil være en nyttig byggekloss i fremtidens markedsmodeller. Prosjektet har bidratt til kompetanseheving innenfor markedsmodellering og -analyse for prosjektets deltakere. Modellkonseptet muliggjør detaljerte beregninger i det Nordiske markedet, noe som åpner for nye typer studier og beregninger. Utført forskningssamarbeid med CEPEL (Brasil) og Fraunhofer (Tyskland) har tilført kunnskap om markedsmodellering i andre kraftsystemer, samt tilrettelagt for videre forskningssamarbeid.

The Nordic power market is in transition, both in terms of technologies used for power generation and market structures. Binding targets exist for renewable power generation, as well as decisions to decommission nuclear generation capacity. Thus, the overall share of intermittent generation will continue to grow, and consequently, the need for flexibility and controllability both in production and demand will increase. In this context there is a need for long-term price forecasts for all electricity products, including energy and different types of reserve capacity and balancing energy, in order to make robust and correct investment decisions, e.g. related to building new cables to the European continent and upgrading and expanding the hydropower system. We believe that consistent price forecasts should be obtained by use of fundamental multi-market models. Currently used fundamental market models for hydro-thermal systems typically only concern the product energy, assume that all uncertainty is revealed in weekly steps, and that all functional relationships are linear. These assumptions will be significantly challenged in the future European power market. The computation of realistic cost for balancing services, which also include the products reserve capacity and balancing energy, requires a much higher degree of details, e.g. in the representation of uncertainty and description of the physical system. In this project we will develop and verify a model concept able to compute marginal prices for all physical electricity products in the Nordic power market. The concept should allow detailed modeling of all physical electricity products, flexible consumption and local storages on a fine time scale. A significant research challenge is to assess how the different balancing market products and corresponding market clearing sequences impacts the system operation and costs.